Inflation Coming
By Monty Pelerin, posted June 23rd, 2010 on Economic Noise
An article by Michael Pento describes the Fed’s predicament rather well. Because of the continued slowing in the economy (what recover?), he believes the next Fed move will be to ease even more:
The next ease from the Fed will most likely be in the form of ceasing to pay interest on excess reserves. Since October 2008, the Fed has been paying interest on commercial bank deposits held at the central bank. But because of Bernanke’s fears of deflation, he will do whatever it takes to get the money supply to increase. With rates being near zero and the Fed’s balance sheet already at an intractable level, the only viable solution to fight Ben’s phantom deflation fear is for him to remove the impetus on the part of banks to keep their excess reserves laying fallow at the Fed.
Mr. Pento believes we end up in inflation rather than deflation for many of the same reasons I do. The Fed will do everything it can to avoid a Depression (it will not succeed) and it will do everything possible to keep the government solvent (only possible via money creation).
This may play out slowly or may arrive like an unexpected tsunami. Be careful, very careful.
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